Professional Documents
Culture Documents
The Corporation Code of the Philippines BP 68 05/01/80 *Bache & Co vs Ruiz: corporation is entitled to an
- was enacted to establish a new concept of business immunity against unreasonable search and seizure.”
corporation so that they are not merely entities for
private gain but effective partners of the National *PH Stock Exchange vs CA: corporation is but an
Government in spreading capitalism. association of individuals allowed to transact under an
assumed corporate name and with a distinct
“Sec. 2. Corporation defined. - A corporation is an personality.”
artificial being created by operation of law, having the
right of succession and the powers, attributes and - there can be no corporate existence without persons
properties expressly authorized by law or incident to its compose of it; no association without associates.
existence.”
- no corporation can be organized unless formed by any
- it is separate and distinct from the members or number of natural persons not less than 5 but not more
stockholders that compose it. than 15, all of legal age and majority whom are residents
of the PH. Applies in De Facto Corporation and
Corporation by Estoppel.
TRI LEVEL RELATIONSHIP ATTRIBUTES OF CORPORATION
- between corporations and its agents or *Int’l Express Travel & Tour Services vs CA: it adopted
representative to act such as directors and its the theory of concession that the basic postulate that
officers governed by Law on Agency before a corporation may acquire juridical personality,
- corporation and its shareholders or members the State must give its consent either in a form of a
- between and among members in common venture special law or a general binding act.”
-between corporation and third parties which is
2. Creature of the Law
governed by Contractual Law; Labor law on tis
- existence of corporation dependent on the consent or
employees and officers grant of State.
3. corporation becomes in its operation a business - corporation cannot come into being my mere consent
economic unit, a business enterprise (going of the parties; there must be a law granting it, and once
concern) granted, it forms the primary franchise of the
corporation.
CORPORATION AS A CREATURE OF THE LAW
- there must be underlying contract between and among
1. Constitutional Provision individuals forming it which grant of State may be
-Congress cannot, except by general law, provide for the conferred.
formation, organization or regulation of private
corporation. Same allows GOCC’s since created by 3. Right of Succession
special charters in the interest of common good. -corporation has the capacity of continuous existence
- private corporation created by special law is nullity and despite the death or replacement of its shareholders or
such special law is void for being a violation of the members for it has personality separate and distinct
Constitution. from those who compose it.
4. Free Transferability of Units of Investment NO. Although both relationship are fundamentally
- GR: shares of stocks can be transferred without the contractual, if the parties intended to create an
consent of the stockholders. association in the form of corporation then a partnership
cannot be created since such is not within their intent.
5. Advantages Over Unregistered Association Secondly, by the feature of limited liability, centralized
- corporation enjoys perpetual succession under its management and transferability are strong factors of a
corporate name and in artificial form; it has capacity to corporate setting for parties intention to be bound in the
take and grant property and contract obligations; it can corporate relationship and cannot be presumed that if
sue or be used under its corporate name as a juridical these features are not met the parties alternative wish to
person; capacity to receive and enjoy common grants of cover a partnership instead.
privilege and immunities; stockholders and members
have no personal liability beyond the value of their 5. Joint Ventures
shared. -same as partnership
1. Due Process and Equal Protection * Professional Services vs CA: corporation which
operate enterprise vested with public interest, such as
2. Unreasonable Search and Seizures that of operating a hospital, assumes certain legal
- properties of members cannot be taken without relationship with members of the public whom the
compensation. invite to use the facilities and thereby becomes
- officers of the corporation from which document, responsible for the negligent acts of even contractor,
papers and things were seized, regardless of the amount such as doctors, who treat them in their facilities.”
and interest and whatever offices they hold have no
cause of action since the corporation has personality
separate and distinct from those other officers. CRIMINAL LIABILITY OF CORPORATION
- old law where moral damages includes besmirched CORPORATION SOLE usually associated with the clergy
reputation which a corporation may suffer. designed to facilitate the exercise of the functions if
ownership of the church which was regarded as property
- Exception: owner. Even when nationality is ascribed in the
corporation sole, the nationality of the constituents of
*Filipinas Broadcasting Network vs Ago Medical and the diocese not the nationality of the incumbent parish
Educational Center: in cases of libel, slander or any must be taken into consideration.
other form of defamation and does not qualify whether
plaintiff is a natural or juridical person. Therefore a 3. PUBLIC UTILITIES
juridical person such as a corporation may validly - only domestic corporation ( which means organized
complain for libel or any other form of defamation and under the laws of the Philippines) with at least 60%
claim for moral damages.” capital stock is owned by Filipino
*Meralco v T.E.A.M Electronic Corp.: when the -unlike to exploitation of natural resources, thus
corporation has a reputation that is debased resulting franchise and operation of public utilities includes the
to it s humiliation in the business realm then awarded place of incorporation test.
moral damages.”
*People vs Quasha: what the Constitution prohibits is
- while court may allow grant of moral damages it is not the granting of a franchise or other forms of
automatically granted. There must be proof of the authorization for the operation of public utility to a
existence of factual basis of the damage corporation already in existence but without the
requisite proportion of Filipino capital.”
NATIONALITY OF CORPORATION
4. MASS MEDIA
PLACE OF INCORPORATION TEST
- a corporation is a national of the country under the laws - shall be limited to citizens of the PH, or to corporations,
of which it has been organized and registered. cooperatives or association, wholly owned and managed
by such citizens.
FOREIGN CORPORATION - does not include commercial telecommunications
- one formed and organized or existing under any laws which are considered as public utilities
other than those of the PH and whose laws allow Filipino
citizens and corporations to do business in its own 5. ADVERTISING INDUSTRY
country or state.
- only Filipino citizens or corporation or association at
CONTROL TEST least 70% of the capital of which is owned by such citizen
- nationality of the corporation is determined to the shall be allowed in the advertising company.
nationality of the majority of the stockholders on whom
equity control is vested. 6. WAR TIME TEST
1. De Jure Corporations
CLASSIFICATION OF CORPORATION - if there is a full or substantial compliance with the
requirements of an existing laws permitting organization
In relation to State of such corporation as by proper articles of incorporation
duly executed and filed.
1. Public and Private - its due incorporation cannot be attacked even in a quo
warranto proceeding by the State. If such it must show
- public corporation are those formed and organized for that it is a de jure corporation
the government of a portion of the State while private
corporations are formed for private purpose and benefit, 2. De Facto Corporations
aim or end. - if there is bonafide attempt to incorporate. Where
there is a defect on the corporation.
- public corporation is created by its charter whereas
private corporation is created under a general 3. Corporation by Estoppel
incorporation law (Corporation Code), however, many - group of person may assume to do business as a
private corporation are granted charters by the corporation without having gone far enough to achieve a
legislature because they constitute GOCC but still not de facto corporation.
considered public corporation.
4. Corporation by Prescription
- 3 types of Private Corporation; those organized under - Roman Catholic Church with acknowledged juridical
corporation code for private ends; as GOCC’s to achieve personality inasmuch as it is an institution which
certain purposes of the Government; GOCC’s organized antedated long before (1000 years).
with their own charters.
As to Existence of Shares of Stocks
2. Quasi-Public Corporation
- usually school district, water district 1. Stock Corporations
- corporations which have a capital stock divided into
*Marilao Water Consumers Association vs IAC: water shares and are authorized to distribute to the holders’
districts organized under PD 198 although considered as dividends. The power to declare dividends is when even
quasi-public corporations and authorized to exercise all not authorized to do so but it is a stock corporation they
the powers, rights and privilege to private corporation can distribute dividends to the shareholders.
under the existing laws, are entirely distinct from
2 Requisite for Stock Corporation being not valid. Court ruled the corporate fiction will not
- a capital stock divided into shares be disregarded because the corporate entity was not
- an authority to distribute dividends. used to perpetuate fraud especially Tuason was aware
of the position of Mr. Araneta in the corporation.
2. Non-Stock Corporations
- is one where no part of its income is distributable as - to disregard the corporate personality is made only
dividends to its members, trustees or officers, subject to after the wrongdoings is first clear and convincingly
the provisions of dissolution. established.
- when the corporate entity is used to commit fraud or to * Umali vs CA: corporate fiction is available only if it
justify a wrong or to defend a crime (Fraud Piercing sought to hold the officers and stockholders directly
Cases) liable for a corporate debt or obligation.
- when the corporate entity is used as a mere alter ego, * Arnold v Willets: where the stock of a corporation is
business conduit or instrumentality of a person or owned by only one person whereby the corporation
another entity ( Alter Ego Piercing Cases) functions only for the benefit of such individual owner,
the corporation and the individual should be deemed
- when respect for the corporate entity would defeat the same.”
public convenience or would result to injustice ( Equity
Piercing Cases) - unlike fraud cases, no pecuniary claims need to be
involved to allow courts to apply the doctrine.
Fraud Piercing cases has the element of malice, evil
motive or a wrong done while the two other cases, even 3. Tax Avoidance Case
in the absence of an evil motive, piercing would be 4 Case under-capitalization
allowed. 5. Forum Shopping
6. Transfer of Business Enterprise
7. Parents-Subsidiary Scenarios
FRAUD PIERCING CASE 8. Business Sense
9. Bases (4)
1. Corporate Fiction must be the very means to commit
fraud - even intends no evil, the use of corporation as alter ego
or as a mere instrumentality for personal agenda is in
- it must be shown by clear and convincing proof that direct violation of the principle of Corporation law.
separate juridical personality was purposefully employed
to evade a legitimate and binding commitment and - both the controlling stockholder or officer and the
perpetuate a fraud or similar wrongdoing. corporation may treat as the same
2. Alter Ego Doctrine an element in Fraud Piercing - may prevail even no monetary claims
- alter ego may be needed to prove the malicious intent - when business enterprise does not really change,
of the parties. doctrine be allow the business creditors to recover from
whom has actual control of the business enterprise.
3. Tax Evasion Cases
DEFEAT PUBLIC CONVENIENCE CASES
*CIR vs Norton and Harrison: court did not hesitate to
pierce the veil of corporate fictions to treat as void sales - it is a dumping ground where no fraud or alter ego
made by parent corporation to its subsidiary as a shield circumstances can be culled by the courts to
for tax evasion by making it appear that the original
warrant piercing
sale was made by the parent corporation to the
subsidiary corporation in order to gain tax advantage.”
PIERCING DOCTRINE AND THE DUE PROCESS “”
4. Evasion of Lawful Obligation
5. Parent-Subsidiary Scenarios
6. Application to impose liability on Corporate Officers - person not impleaded in the case cannot be bound by
the decision therein, since no individual or entity shall be
-to make corporate officers liable for contracts or affected by a proceeding which he is a stranger.
transactions entered into in behalf of the corporation.
CORPORATE CONTRACT LAW
7. Elements
- corporation has the capacity to contract through the
- there must have been fraud or an evil motive in the
process of incorporation, culminating with the approval
affected transaction
of its articles of incorporation.
- corporate entity has been used in the perpetration of
the fraud or in justification of wrong or to escape - the approved articles of incorporation constitute a
personal liability contract between the state and the corporation, and
- the main action should seek for the pecuniary claims defines the powers and capacities of said corporation.
pertaining to corporation against corporate officers or
stockholders. - powers and capacities is limited only to what is
expressly granted by law, provided in its charter and
those incidental to carry the purpose of the business.
- all powers and capacities are vested with the BOD *Hall vs Piccio: in the absence of formal issuance by the
SEC of the certificate of incorporations, any other
- articles of incorporation and by-laws embody the colorable attempt in good faith to incorporate would
contractual terms and conditions between and among not qualify the application of the doctrine.
members of the intra-corporate family.
Valid Statute : Corporation Code : First Element
- the regulation, amendment or revision of articles of
incorporation and by-laws are governed by the Colorable Compliance: must be shown; if no good faith
Corporation code. to attempt the creation of de jure corporation then there
can be no de facto corporation.
- every corporation’s juridical capacity to contract is the
product of the exercise by the state of its powers to grant User of Corporate Power: taking subscription for the
a group of individuals pursuing a common venture a issuing of shares of stocks, electing directors and officers,
separate juridical person expressly empowered to deal adopting by-laws, buying a lot and constructing building
with non intra corporate parties and enter in a valid and upon it are sufficient act if user of corporate powers to
binding contracts with them. constitute a de facto corporation.
- for a contract to be valid and binding there must be - seeks to enforce contract where clearly the element of
consent or meeting of the minds, subject matter of the consent is lacking because one parties thereto, a
contract, and cause of consideration. purported corporation, does not in fact exist at the time
of perfection.
PRE INCORPORATION STAGE:
- theory that an admission or representation made is
1. Promoter: a person, who is acting alone or with others conclusive and cannot be denied or disproved as against
takes initiative in founding and organizing the business the person relying thereon.
or enterprises of the issuer and receivers consideration
thereof. *Asia Banking Corp vs Standard Products Corp.: general
rule is that absence of fraud, a person who has
2. Promoter’s Contract: those type of contracts entered contracted or otherwise dealt with an association un
into in behalf of a corporation which is in the process of such a way as to recognize and in effect admit its legal
organization and incorporation and such fact is existence as a corporate body is thereby estopped to
acknowledged as an essential ingredient in the process deny its corporate existence In any action leading out of
of perfection. or involving such contract unless its existence is
attacked for causes which have arisen.”
3. Application of Law on Agency
-every promoter or representative of a corporation in the ULTRA VIRES DOCTRINE
process of incorporation binds himself to ensure that the
corporation once formed will ratify the contracts entered - deals with the corporate capacity to validly enter into
into its name; otherwise he became personally liable for contracts and transaction and involves either two
such contract in the event corporation does not so ratify principles in PH Corporate Law.
it once it comes into existence.
Cases:
-principle of ratification is essential in making every - those entered into or done beyond the powers of
promoters contract valid and binding against the corporation
corporation once it has come into legal existence. - those entered into or done by person who has no
corporate authority
- acts or contracts which are illegal per se
DE FACTO CORPORATION DOCTRINE
ARTICLES OF INCORPORATION
- that the defect or alleged inexistence of the juridical
personality of a corporation cannot be raised collaterally - when it has been approved by the SEC constitutes every
and can only pursued in a direct suit filed that seeks to duly registered corporation’s charter.
question such juridical personality i.e. quo warranto
*Gala vs Ellice Corp.: the best proof of the purposes of
Requisite: corporation is its articles of incorporation and by-laws.
- existence of a valid law under which the corporation Such must state the primary and secondary purposes of
may be incorporated the corporation while the bylaws outline the
- an attempt in good faith to incorporate, or existence if administrative organization of the corporation which
a colorable compliance with provisions on incorporation facilitates the accomplishment of said purpose.”
- assumption by the enterprise of corporate powers
REGISTRATION OF ARTICLES OF INCORPORATION OTHER DOCUMENT REQUIREMENTS